Blockchain in 2020: trends to watch – ICONIUM
Initial Coin Offering disappeared in 2019 or rather, they have changed shape. Most of the projects launched this year have used exchanges like Binance or platforms like CoinList to fundraise, through IEO (Initial Exchange Offering). The main reason behind this evolution is due to more stringent KYC and AML, as well as the banning of ICO in many Countries around the World (US and China in primis). Exchanges have already hundreds of thousands of customers duly KYCd and can simplify enormously the process of launching a token sale. 2019 has also seen a strong shift from crowdsales (or ICOs) financed directly -and solely- by the the public, to a massive participation from Institutional investors through private sales. The crowd sale to the public is still a very valuable tool for every project as it allows to distribute tokens to a large number of people, get early users and create a community but in 2019 the amount of money raised through VCs and other institutional investors is by far more relevant and represents a sort of ‘quality stamp’ for the retail investors. Of course we will see new projects in 2020 and probably IEO will continue to be the most common way to fund raise among the public but only the strongest projects curated by the best exchanges and the best VCs will be able to raise significant funds.
In the blockchain space we see 2 types of emerging Unicorns (more than $1B in value): Companies and Protocols. Companies are valued based on the value of their Equity and the latest fund raising rounds. Protocols are valued based on the listing price and the cumulative value of their circulating token supply (see coinmarketcap). While 2017 and the first part of 2018 have seen the rise and dominance of Unicorns in the Protocol category, the second part of 2018 and 2019 have seen the rise of Blockchain Company Unicorns, and the fall of many protocols. We believe the 2020 will see projects maturing in both categories, but we expect that Unicorns in the protocol category will see a dramatic raise both in numbers and users.
2019 has been the year of the Exchanges. They have grown in power, range of service offered, replacing independent ICOs as well as wallet providers, independent staking services, lending and custodian services.
They have also become way more secure and while only 2 years ago was considered crazy to keep large amount of cryptos with exchanges this is becoming more and more ‘normal’. Coinbase has launched its successful custodian service dedicated to Institutional investor.
Binance has launched more products and features in 1 year than most Companies in 10 years: futures, lending, staking, IEOs (the founder CZ, invented them, and launched the trend), a decentralized exchange, an incubator and a venture arm, and its own blockchain competing with Ethereum (!!).
Growth in newly launched spot exchanges will slow as regulation is becoming more stringent and competition is fierce. We expect to see more exchanges shutting down and maybe more mergers and acquisition to create larger operators able to compete with the giants of the industry, or simpy to get access to a local market (Binance just acquired an exchange in India to launch its operations in the Sub-continent). We are also expecting to see new -disruptive- business models for exchanges, like lvl.co, which now offers flat monthly fee for unlimited free trades.
More exchanges will launch zero-fee staking and higher interest bearing accounts to win users’ fund and lock them into their ecosystem.
The quality of data available on blockchain and cryptocurrencies is getting better day by day, in part for the effort made by data provider like Coinmarketcap that are adding more stats and tools to fight fake metrics like wash trading and in part for contributions from research and security companies involved in blockchain ecosystem. Still, there’s a lot of work to do to match the criteria required by the ‘Institutional’ finance to become a credible and reliable new ‘Asset class’. In this direction, the launch of Bakkt by the holding Company of the New York Stock Exchange represents a gigantic step toward credibility, as well as the roll-out of Crypto Products by Fidelity, one of the largest Asset Managers in the World, which has also recently opened Crypto Operations in Europe.
Crypto Asset under Management (AUM) by Institutions grew over 100% in 2019, with $ 20bn under management for investment in digital assets and equity of blockchain Companies. Data are partial and mainly coming from US sources. Asia is a very large Market for cryptos but obtaining reliable data is challenging. Every day more and more Family Offices and Pension Funds are getting interested in exposure to cryptocurrency as a way to diversify their portfolio and get access to the most uncorrelated asset (and the most profitable of the past 10 years). This is happening also due to blockchain focused vehicles coming from traditional financial players like Bakkt, ErisX, Fidelity Digital Asset. Nonetheless, also new players, Blockchain-native, are contributing heavily to these numbers. Funds and Companies like Blockchain Capital, Pantera, Polychain are becoming true leaders in the space, together with newly launched funds launched by the most successful Venture funds of our era: Sequoia (Paradigm), USV (placeholder.vc), Andreessen Horowitz (a16z crypto), and others.
We are living the transition from Web 2.0 to Web 3.0, there are some critical pieces of infrastructure that need to be re-invented and several blockchain companies are working hard on it: Decentralized hardware (Helium), computation (Golem), domain registry (Ethereum Domain Name Service), data privacy and advertising (Brave browser) identity and governance systems (uPort, Selfkey Sovrin) that need to be “re-invented”. More applications will see the light over the next years and most of them will be mobile based.
Gaming will be an important sector dominated by non-fungible tokens: the recent success of Gods Unchained is one example.
Social Platform will become decentralized, Telegram with TON, Kakao with Klatyn, Signal with MobileCoin,. Whatsapp/Facebook/Instagram with Libra (?) and BlueSky, the project of decentralized Twitter led by the CEO Jack Dorsey.
New, less-exploitative business models will be tested, as well as censorship resistant and privacy centered services, will start to gain adoption.
Crypto Wallets and Exchanges have the opportunity to build the banking service of the futures. With lending, borrowing, staking and custody they have all the cards to offer innovative financial services to fulfill the needs of new generations, both in modern economy and for the unbanked. We would not be surprised if Binance and other exchanges become among the major global banks over the next few years.
Stablecoins are the most traded digital assets, in particular loved by traders to avoid the extreme volatility of cryptomarkets. In 2018/2019 we saw fierce competition for dominance in stablecoin markets. Today we can see the triumph of fiat-backed stablecoin (USD Dollars especially) but also the success of DAI (the stablecoin fully backed by Ether) as safe haven currencies in emerging markets like Latin America, where no one actually wants to hold the local currency.
The launch of the Libra initiative by Facebook was undoubtedly one of the biggest news of this year but it seems that regulators are not ready to support global initiatives that could jeopardize the monetary sovereignty of States, meanwhile Central Banks are working to launch the official national digital asset: China has been the 1st to announce its Digital coin. Many Central Banks are following the Chinese direction, but we think will be difficult to see concrete results in 2020 (also for Libra).
The hot topic of blockchain in 2019 was “Decentralized Finance” or better know as “DeFi”. This word includes all decentralized financial services that can be built on blockchain such as: lending, decentralized exchanges, payment and derivatives services. As of today the equivalent of $ 650 millions are locked in the Ethereum blockchain inside DeFi protocols, approximately 3x than at the end of 2018. A large part (approximately 67% ) of these Ether is locked in Lending protocols (MakerDAO mainly). The success of these protocols was unforeseeable but a growing number of users is using those decentralized services instead of borrowing and lending cryptos from centralized operators such the Exchanges. Protocols like Synthetix have gained exponential tractions in the past few months, especially among traders who create synthetic assets for trading purposes. Decentralized Exchanges (DEX) are seeing increasing volumes as scalability issues are solved. The integration between DEXs and other DeFi applications are showing early sign of success: integration, usability, accessibility are improving all together, creating ‘one-stop shops’ with an ‘Open Finance’ approach.
Currently almost all DeFi services are deployed on Ethereum: soon new services will be deployed on other blockchain and interoperability services will make the different services and blockchain communicate and increase the liquidity pools, accelerating the growth of this segment.
Soon after Bitcoin rose to initial popularity, DAOs quickly became a new dream for many early developers and adopters. The idea of having a digital instrument like Bitcoin opened up countless opportunities. Everything seemed possible all of a sudden: but soon the dream lost pace. Today “The DAO” trauma has been overcome; several DAO frameworks are pioneering a new way into the future, and an increasing amount of supporting elements is rapidly advancing and the DAO dream seems once again at reach. Examples include MolochDAO (allocation of ETH 2.0 funding grants), MetaCartel (Web 3.0 dApp development grants), and the MarketingDAO (a community-managed marketing fund for Ethereum). So far, the 2019 early success stories show how DAOs could effectively coordinate human financial actions.
Published at Fri, 20 Dec 2019 18:22:29 +0000
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